How to Deduct Travel Expenses by Investing in Places You Vacation

How to Deduct Travel Expenses by Investing in Places You Vacation

3 min read
Amanda Han

Amanda Han has been a CPA specializing in tax strategies for real estate, self-directed investing, and individual tax planning for over 18 years. She’s been investing in real estate herself for over 10 years with a focus on long-term hold residential and multifamily assets across multiple states.

Experience
As both a tax strategist and real estate investor, Amanda combines her passion of real estate investing with her expertise in tax. Her goal is to help investors with strategies designed to supercharge their wealth-building using entity structuring, self-directed investing, and income offset opportunities to keep more of what they make.

Her highly rated book Tax Strategies for the Savvy Real Estate Investor is amongst Amazon’s bestseller list. Amanda is also a frequent contributor, speaker, and educator to some of the nation’s top investment and self-directed IRA companies.

Amanda and her husband Matt MacFarland have a passion for animals and founded Animals for Armed Forces, a non-profit organization that has helped to place over 1,800 shelter pets with forever homes.

Press
Her cutting-edge tax strategies have been featured in prominent publications, including Money Magazine, Realtor.com, and AllBusiness.com. Amanda was a speaker at “Talks at Google” that features influential thinkers and creators. Amanda has also appeared in CNBC’s Smart Money Talk Radio, as well as BiggerPockets podcasts.

She is a 40 under 40 honoree by CPA Practice Advisor, showcased amongst the best and brightest talent in the accounting profession. Her firm Keystone CPA, Inc. was awarded a two-time winner of the Top CPA of Orange County Award by OC Metro Magazine.

Accreditations
She is certified by the CA State Board of Accountancy and is a member of the prestigious American Institute of Certified Public Accountants (AICPA) with clients across the nation.

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Everyone’s strategy for purchasing rental real estate is a bit different. Some investors like to find properties close to home so they can keep an eye out for any problems. Others like to buy properties that are as far away as possible so that the investment can remain passive and hassle-free.

Everyone’s strategy is tailored to fit their own budget and preference. My favorite strategy when it comes to tax savings is buying rentals in places that you visit often. Now, I am not saying you must buy in a place that you love to vacation — that could be one of the worst ways to invest. It is important to look at each investment for what it is: an investment property. But if the numbers make sense, then why not buy investment property in locations where you visit often?

What Travel Expenses Qualify as Deductions?

A few years ago, two of our clients, Ray and Shirley, were absolutely insistent that they could not deduct a single travel expense for any of their three rentals. Why? Well, they had three kids who all lived in different parts of the country, so they decided to buy all of their rentals in the cities that their children lived in. This way they could kill two birds with one stone every time they flew back East: check in on their properties a few times a year and visit their kids and growing grandkids. Therefore, they felt that their trips were personal and completely non-deductible.

Related: How to Deduct 100% of Your Meal and Entertainment Expenses

Before ruling out travel expenses altogether, Ray and Shirley should take a quick quiz to see if their expenses qualified as deductions:

  • Was the primary reason for the trip to visit their rentals?
  • Did they spend more than 50% of their trip doing business?
  • Did they have meetings or appointments in place before they left?

Ray and Shirley answered “yes” to all of these questions, confirming that their travel expenses were indeed business-related. They admitted that there was generally a rental-related reason for the trips in the first place, either to meet with their property managers or sometimes to assess damage done to their rentals. They would generally spend a few days in town dealing with any business issues and then would spend their last day in town with their family before flying home the next day. They were thrilled to find out that they were actually able to deduct their airfare, hotel, rental car, and meal expenses, despite the fact that they were visiting family.

Taking Business Vacations

Our client Erin on the other hand took a different approach to selecting her rental property. Before she invested in real estate, she worked in a call center in a big city for an internet company. She had always wanted to go to Hawaii, but with her small salary and her college loans out of deferral, she could never scrape up enough money to take her dream vacation.

Years later, when Erin eventually got her foot in the door of the real estate business, she finally took her long-awaited vacation to Hawaii, and instead of coming home with souvenirs, she came home with a new rental property. While this property was not her most lucrative investment, it was by far her favorite for the sole reason that she could to go back to Hawaii every year. Like Ray and Shirley, she would spend a few days working out details, repairs, and issues at her rental and would then spend the remainder of her trip doing all of the snorkeling, surfing, tanning, and eating that she could possibly fit in. The best part was that her hotel, airfare, rental car, and meals were all deductible since they were all business-related.

Conclusion

So as you can see, with a little preparation you can plan your business around your vacations so that you can work and relax at the same time — because, let’s be honest, the work doesn’t really ever stop as an investor. Just keep in mind that the primary reason for your trip needs to be business-related. You need to have meetings set up prior to your departure, and you need to spend majority of your trip conducting business. What you do on your days off is up to you!

Related: What Can I Deduct? The Answer That Will Save You on Real Estate Taxes

Another great tip is that travel days count as business days, so don’t think that the work needs to start the second you step off of the plane. Instead of rushing straight to your property manager’s office, you can spend that first afternoon lounging by the pool or enjoying dinner with your family and save the work until the next day of your trip.

Perhaps instead of buying that next rental close to home, you might instead pick a condo near where your son attends college, or you might buy a rental home in California if you’ve always wanted to vacation there. The possibilities are endless when it comes to real estate, so why not get more out of your property than just a good profit?

Do you combine vacation time with business-related travel?

Leave a comment below, and let’s talk tax deductions!